Budapest, 16 September, 2022. Based on the decision of the Monetary Council of the Magyar Nemzeti Bank (MNB), from 1 October 2022, in order to strengthen the efficiency of monetary transmission and to ensure the long-term absorbtion of liquidity in the banking system, the reserve requirement of credit institutions will increase from the current 1% to a minimum of 5%, which may reach up to 10% based on individual bank decisions. In addition to the monthly average reserve requirement for the chosen reserve ratio, the MNB will also require banks to ensure that the balance of their reserve accounts does not fall below 5 percent on a daily basis. In addition to the increased reserve requirement, the MNB will launch regular discount bill auctions in October and hold tenders for a new variable rate long term-deposit facility, which will also strengthen the monetary transmission.
The MNB's Monetary Council has decided to amend the rules on minimum reserves from 1 October 2022. The changes to the minimum reserve system are contained in MNB Decree No. 10/2005 (VI. 11.) on the calculation, the method of allocation and placement of the minimum reserves, and MNB Decree No. 35/2022 (IX. 15.) on the reserve ratio. According to the amendment the reserve requirement, which currently amounts to 1 percent of the liabilities subject to reserve requirement increases significantly and includes both daily fixed and monthly average compliance. The minimum reserve requirement is increased to 5 percent, which credit institutions are subject to comply with on a daily basis, thus ensuring the long-term liquidity absorbing. Above the minimum rate of 5 percent, an additional rate of up to 5 percent will be introduced, which can be chosen on a percentage basis, allowing the MNB to absorb additional liquidity and giving credit institutions the flexibility to deal with liquidity shocks. For the freely chosen reserve ratio, the regulation requires compliance on a monthly average basis. The amendments will enter into force with the monthly reserve maintenance period starting on 1 October 2022. Credit institutions subject to reserve requirements may make their choice of the optional rate for the quarter starting 1 October 2022 by 19 September 2022, by submitting a declaration to the MNB. Given the operational challenges of the transition period and the specificities of the end-of-quarter period, in order to ensure a smooth transition to the new minimum reserve system, the MNB is willing to temporarily waive daily compliance between 1 and 6 October 2022, upon individual bank request. The MNB has consulted the European Central Bank and domestic credit institutions on the amendments. The text of the Decrees on minimum reserves is available here .
As a further liquidity-absorbing measure, the discount bill auctions, previously used at the end of each quarter to facilitate the banks’ balance sheet adjustment, will be held on a regular basis. Absorbing excess liquidity through central bank bills will strengthen monetary transmission by reaching a wider investor base. The regular discount bill will be issued by the MNB in line with the parameters of the 1-week deposit facility to ensure consistency between monetary policy instruments.
The MNB is also providing a long-term deposit facility with variable rate starting in October, with the aim of absorbing liquidity for longer periods than one week, in order to reduce the volatility of short yields by increasing the average maturity of the sterilisation stock, which strengthens the monetary transmission.
The operational details of the regular discount bill and the long-term deposit facility will be published by the MNB by the end of September, with the first auction and tender taking place in early October.